Tesla Catches Fire: How Big a Problem?

By Ben Levisohn

Yesterday, reports emerged that Tesla’s (TSLA) Model Scaught fire after an accident. And investors apparently think it’s a pretty big deal. Tesla’s shares fell 6.2% yesterday and are down again this morning.

Deutsche Bank’s Rod Lache and team, however, tell investors not to worry. They write:

We expect that negative news flow and investor concern over the impact to demand of this incident will put negative pressure on the stock in the nearterm. And these are meaningful concerns, as this is a new technology and one in which sensitivity to safety risk is very high. We believe that there are several issues that will mitigate the negative impact to perception of Model S safety…

Those include 83 million miles of driving with this being the first fire, the fact that it resulted from a collision and that the fire began gradually and the driver was warned by the car. As a result, Deutsche Bank is still bullish on the stock. The analysts write:

This incident does not change our positive thesis on the company or the stock. Given significant Roadster and Model S experience (6 years, tens of millions of miles driven) without a fire, we have confidence that this is an isolated incident that could happen to any vehicle.

Of course, the Model S is not just any vehicle–it’s a Tesla. When Bairdcut the stock yesterday, it noted that sentiment had turned and I can’t help but thinking that an event like this, even if it’s isolated, will do nothing to restore the stock’s mojo.

Tesla’s shares have dropped 4.6% to $172.60, while General Motors (GM) has fallen 0.6% to $35.72, Ford Motor (F) has declined 0.6% to $17.11 and Toyota Motor (TM) has gained 0.7% to $128.50.

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There are 7 comments

OCTOBER 3, 2013 9:54 A.M.

absorption wrote:

boy someone should proofread this stuff before it gets posted — "Tesla's shares have dropper" ?? and the paragraph above is a bit of a mess as well

OCTOBER 3, 2013 9:55 A.M.

Jeremy wrote:

Sell your shares before they "dropper" more.

OCTOBER 3, 2013 9:59 A.M.

Trip wrote:

Was a setup by GM to attempt to slow the Tesla juggernaut.
They created the scenario in the hopes it would go viral and cause investors to jump ship.
Take my advice...buy while you can during the lull.
Tesla will be $200 by January.

OCTOBER 3, 2013 10:02 A.M.

Trip wrote:

@ Jeremy - do me a favor and have the testicular viscosity to return to this thread in a week and validate you prediction.
I will....and my prediction is a Tesla upswing in stock during that same timeline.
Look beyond the knee jerk media hype and know what is pending for Tesla regards to release of information in the next week.

OCTOBER 3, 2013 10:25 A.M.

jetamerica wrote:

The fire after many millions of miles is not a big deal.

However, the grotesque price of this stock is. They may sell 20,000 units this year, every one at a loss without Gov't subsidy to a small coterie of the 1% and some speculators really think this company has a greater value than any other manufacturer selling worldwide. TM market cap at 0.7% of annual sales, F at about the same and some people think that a company selling $1.3 billion should be valued at 20 times sales.That's nuts

I have only shorted stocks a handful of times in 40 years in the market.

This is one.

A nice company making a good product for a select few customers-may be worth a market cap of 5 times sales as it has some breakthrough technology. Not more

OCTOBER 3, 2013 11:34 A.M.

Question wrote:

"All indications are that the fire never entered the interior cabin of the car," Tesla said in its statement. "It was extinguished on-site by the fire department."

Does this mean a chuck hole or a road hazzard could hit the battery pack because it is outside of the vehicle at the lowest point - the floor?

OCTOBER 3, 2013 3:49 P.M.

Alpha wrote:

Here is the real kicker as to why Tesla’s stock will eventually crash. Elon Musk has guaranteed that the Model S will retain 50% of its value in three years. Keep in mind that the battery pack currently makes up roughly half of the cost of a model S. But Tesla’s stock has been surging on expectations of a mass market car that is only possible if battery costs fall by roughly 50%. Hmmmm, so Tesla is guaranteeing the residual value of the model S, of which roughly half the value is in the battery pack, and at the same time Tesla is betting that Battery prices will fall enough to produce a profitable mass market car. Either Tesla is going to take massive loses on its residual value guarantees, or the mass market car will never make it to market. Most experts agree that battery costs will not fall fast enough for Tesla to produce a mass market car. Therefore, the best case scenario for Tesla would be to remain a high end EV manufacturer. Problem is even well established high end auto manufacturers are worth only a fraction of Tesla’s current market value. Porsche, for example, was recently acquired by Volkswagen for $10 billion, almost 60% less than Tesla’s current market value. You see, without a mass market vehicle, Tesla’s stock must crash, even if it remains a highly successful luxury EV manufacturer.

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Earnings reports, corporate strategies and analyst insights are all part of what moves stocks, and they’re all covered by the Stocks to Watch blog. We also look at macro issues, investor sentiments and hidden trends that are affecting the market. Stocks to Watch gives you the full picture of the U.S. stock markets, all day long.

The blog is written by Ben Levisohn, a former stock trader who has covered financial markets for the Wall Street Journal, Bloomberg and BusinessWeek.